BEIJING (Reuters) - Shifting China's model of urbanization
to favor huge supercities could boost per capita output,
improve energy efficiency and help contain the loss of arable
land, the McKinsey Global Institute (MGI) said on Monday.

Rapid urbanization has been a major driver of Chinese
growth over the past two decades and will become more so over
the next 20 years; cities will account for 95 percent of
China's gross domestic product by 2025, up from 75 percent
today, MGI said.

But the institute, the economics research arm of
consultants McKinsey & Co, said in a report that China could
reap even greater economic benefits by adopting a more
concentrated pattern of urban growth.

By enforcing land acquisition rules more strictly and by
tweaking incentives for local officials, national policy makers
could nurture 15 supercities with average populations of 25
million people, the report said.

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Alternatively, planners could develop 11 clusters of cities
with combined populations of more than 60 million people.

China currently only has two cities of more than 10 million
people, Beijing and Shanghai.

China's urbanization rate doubled between 1980 and 2005 to
44 percent and will climb to 66 percent by 2025, driven by the
influx of an additional 240 million rural migrants, MGI said.

This flight from the land will impose huge strains.

Urban China will need to find double the energy and water
resources they now consume. Arable land could shrink 20 percent
in the worst case, and pollution, no matter what, will be
severe.

But MGI said supercities would be better equipped to handle
the challenges than a rash of smaller cities: energy
productivity would be almost 20 percent higher; public
transport would be more efficient; air and water pollution
would be easier to control and farm land losses could be kept
to less than 8 percent.

"China's leadership has an opportunity to shape the path
that urbanization takes to maximize economic outcomes and most
effectively mitigate the pressures that urbanization will
create.

"We find that shifting China to a more concentrated pattern
of urban expansion would achieve both objectives," said Richard
Zhang, a senior partner in McKinsey's Shanghai office.

THINK BIG

What's more, concentrated urbanization would boost GDP per
capita growth by as much as 20 percent above the current
trendline, thanks to scale effects and productivity gains.

Big cities also lure skilled workers, which would enable
China to move more rapidly up the value ladder.

Whatever the model of urban growth, construction over the
next two decades will be unprecedented as the number of city
dwellers rises by over 350 million -- more than the U.S.
population -- to 926 million in 2025 from 572 million in 2005.

By 2025, China will have 221 cities with more than 1
million people, compared with 35 in Europe today.

China will need to build between 20,000 and 50,000 new
skyscrapers -- the equivalent of up to 10 New York Cities.

China will pave up to five billion square meters of road
and as many as 170 cities could meet criteria for mass-transit
systems, more than twice the current number in Europe.

"This could promise to be the greatest boom in mass-transit
construction in history," the report said. (Reporting by Alan
Wheatley; editing by Ken Wills)